Even as the global economy cools down, the U.S. economy has shown strong resilience. For the third quarter of 2014, the Commerce Department raised the GDP growth estimate to 3.9% from an earlier estimate of 3.5%.
Strong GDP growth in the U.S. economy coupled with the highest levels of consumer sentiment since the financial crisis makes the U.S. markets (SPY) attractive as compared to other developed market equities. In particular, the Euro-Area seems to be in a spot of bother and I expect the Euro-Area economy to slip into recession in 2015.
As the chart below shows, seven Euro-Area members are already in deflation and this is an ominous sign for the region.
I believe that the U.S. economy will continue to show resilience and the Euro-Area economy will continue to struggle with deflation fears in 2015.
Further, as the second chart below shows, the overall Euro-Area inflation is at the lowest levels among developed markets like U.S., U.K., Japan and Canada.
ECB President Mario Draghi has hinted at further stimulus for the Euro-zone. However, the impact of the stimulus is unlikely to be immediate on the economy. Further, I believe that easy money from the stimulus will flow into relatively attractive markets globally and this includes the U.S. equities and the Indian markets.
I am therefore of the opinion that the U.S. is one of the attractive markets to consider for investment in 2015. Among specific investment themes, I like stocks in the consumption and healthcare sector. I also like stocks in the energy sector as the sector has been beaten down badly after the current slide in oil prices.
In the consumption space, my favourite stock remains Walmart (WMT, Financial) and I expect the stock to outperform the markets in the next six months. The company’s e-commerce business has been growing at a strong pace contributing to same store sales growth and the company is also making investments in new technologies. With high consumer sentiment and a festive season, I expect the stock to continue to move higher as it has done in the last 3 months.
I the healthcare space, I believe that Johnson & Johnson (JNJ, Financial) is one of the best bets. The stock is currently trading at close to its 52-week highs, but there are reasons to remain bullish on the company. The company is very stable in terms of dividend payout and a current dividend yield of 2.6% is healthy. Further, the global healthcare industry is expected to grow at a strong pace over the next five years according to this report from Deloitte. I believe that JNJ will be one of the key beneficiaries of the strong industry growth. Further, the company still has huge growth potential in international markets where the baby care, women care and skin care segments are experiencing robust growth (particularly China and India).
In the energy sector, investors can consider exposure to the broad energy sector through the Vanguard Energy ETF (VDE, Financial). Besides that, I am also bullish on stocks like Statoil (STO, Financial), Marathon Oil (MRO, Financial) and Whiting Petroleum (WLL, Financial), and I have discussed these stocks individually in articles in GuruFocus. I believe that the correction in the energy sector is overdone and a bounce back in oil prices in 2015 will take these stocks higher.
In conclusion, the U.S. stock markets are likely to remain strong in 2015 as global portfolio is adjusted because of weak Euro-zone economy, Japan recession and slow growth in China. I believe that investors can consider exposure to the U.S. markets at these levels and also consider exposure to selective stocks, which have the potential to outperform.
